Understand unrealised gains and losses and how they reflect paper profits or losses before asset sale.
Unrealised gains and losses represent changes in the market value of an asset that has not yet been sold. These are also referred to as "paper" profits or losses and play a critical role in portfolio valuation and financial reporting.
Unrealised gains and losses refer to the changes in the market value of an investment or asset that has not yet been sold. These changes represent the difference between the asset’s current market price and its original purchase price, but since the asset remains unsold, the gain or loss is only "on paper." That’s why they’re often called paper profits or losses.
An unrealised gain occurs when the current market value of an asset is higher than its purchase cost. Conversely, an unrealised loss happens when the market value drops below the acquisition price. Since no transaction has taken place, these changes do not result in any immediate financial gain or tax liability.
Unrealised gains and losses are a critical part of portfolio evaluation, accounting (especially fair value reporting), and investment analysis. They reflect the asset’s potential to contribute positively or negatively to overall net worth but do not translate into real profit or loss until the position is exited.
Unrealised gains and losses arise from fluctuations in the market value of assets that are still held by an investor or company. These gains or losses remain "unrealised" because the asset hasn’t been sold—meaning there is no actual profit or loss yet, just a change in value on paper.
The basic formula to calculate unrealised gain or loss is:
Unrealised Gain or Loss = Current Market Value – Purchase Price
This calculation helps investors and companies track performance over time without liquidating assets.
Example:
Suppose you purchase 100 shares of a stock at ₹500 each, investing a total of ₹50,000. A few months later, the stock price rises to ₹650. Your investment is now worth ₹65,000.
Unrealised Gain = ₹65,000 – ₹50,000 = ₹15,000
If the price had instead fallen to ₹450, then:
Unrealised Loss = ₹50,000 – ₹45,000 = ₹5,000
These figures are important for portfolio valuation, financial reporting, and investment decisions, but they don’t result in any taxable event unless the asset is sold.
Unrealised gains and losses are changes in the value of assets that have not yet been sold. These are often called “paper gains or losses” because they exist only on paper and are subject to change with market movements. They do not trigger any tax liabilities unless the asset is actually sold.
In contrast, realised gains and losses occur when an asset is sold, locking in the profit or loss. These are considered final and typically subject to taxation based on the applicable capital gains tax rules.
| Criteria | Unrealised Gains/Losses | Realised Gains/Losses |
|---|---|---|
| Trigger Event |
Price fluctuation (no sale) |
Sale of asset |
| Tax Implications |
Not usually taxed |
Generally taxable |
| Accounting Treatment |
Marked-to-market or disclosed in notes |
Included in income statement |
| Impact on Cash Flow |
No impact |
Affects cash flow |
| Permanence |
Temporary; can reverse |
Final; profit/loss is booked |
Understanding the difference allows investors to navigate decisions around selling, return reporting, and tax considerations with greater clarity and awareness.
Unrealised gains are not taxed under current Indian tax laws. Since the asset has not been sold, the gain remains theoretical or "on paper," and no actual income is recognised for taxation purposes. This makes unrealised gains exempt from tax until they are realised through the sale or transfer of the asset.
However, once the gain is realised—meaning the asset is sold for more than its purchase price—it may become subject to capital gains tax. The tax rate will depend on the nature of the asset and the holding period (short-term vs long-term).
Globally, there have been proposals to tax unrealised gains annually, especially for high-net-worth individuals. These ideas have surfaced in policy discussions in countries like the United States, but such rules are not currently implemented in India or most other jurisdictions.
It's important for investors to track unrealised gains for performance measurement, but understand that tax obligations arise only upon realisation under current tax law.
Unrealised gains and losses represent changes in asset value that occur while the asset is still held. They are important for tracking portfolio performance and assessing potential returns but do not trigger tax liabilities until the asset is sold. The calculation is straightforward—subtract the purchase price from the current market value. Unlike realised gains, which are taxable and reflect actual income, unrealised gains remain “on paper.” Understanding the distinction helps investors make informed decisions, manage tax planning, and maintain accurate financial reporting.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
No, unrealised gains are not taxed in India. Tax is applicable only when the asset is sold and the gain becomes realised.
Subtract the purchase price from the current market value. A positive result indicates a gain; a negative one indicates a loss.
Yes. For certain assets, unrealised gains or losses are reported under revaluation or other comprehensive income in financial statements, depending on accounting standards used.